This article is part 3 of AJL’s Impact Investing Journey Series. Read Part 1: How We Got Started, Part 2: How We Assessed our Financial Advisor and Part 4: Timeline and Resources.
At this point in our impact investing journey, the AJL Board of Directors and staff:
- Have agreed that our mission applies across our portfolio – not just to grantmaking – and that we need to hold ourselves accountable for the social impacts of all of our investments.
- Improved our governance around investing so we can be a better partner to our financial advisors and better evaluate the value they provide.
- Assessed our financial advisors to see if they were still a fit given our new goal of full mission-alignment across our portfolio and the result was that they were not.
- Went out for bid to find a new impact-oriented financial advisor who could help us meet our impact and financial goals and selected Syntrinsic Investment Counsel.
Six months after engaging with Syntrinsic, AJL reached full mission-alignment across our portfolio. Here’s how we did it:
Impact Investing Objectives and Strategies
In partnership with Syntrinsic, we identified our impact investing objectives and strategies. Our two objectives are weighted equally:
- Impact Objective: To avoid harm, benefit stakeholders and contribute to solutions wherever possible.
- Financial Objective: Consumer Price Index (CPI) + 5% per year
In line with both objectives, our investment strategies include:
- Exclusionary Screening: Exclusionary screening is the process of screening specific assets out of an investment strategy and results in divestment. AJL’s entire portfolio has been screened to exclude investments in abortion, adult entertainment, alcohol and tobacco, firearms and gambling.
- ESG Integration: ESG (environmental, social and governance) investing is a term that is often used synonymously with sustainable investing, socially responsible investing, mission-related investing, or screening. It's the consideration of environmental, social and governance factors alongside financial factors in the investment decision-making process which can help identify material risks and growth opportunities. ESG metrics are not commonly part of mandatory financial reporting, though companies are increasingly making disclosures in their annual report or in a standalone sustainability report. AJL has integrated ESG criteria across our entire portfolio.
- Thematic/Lens Investing: focuses on issue areas where social and/or environmental needs offer commercial growth opportunities for market rate return. AJL is investing to support the United Nations Sustainable Development Goals #10 "Reduced Inequalities" and #11 "Sustainable Cities and Communities." Click here to see how much of AJL’s portfolio is invested in thematic investments as of the most recent quarter.
- Impact First Investing: emphasizes the optimization of social and/or environmental needs (ie: mission-related investments or program-related investments) which may result in financial tradeoff. Our goal is to deploy 10% of our portfolio, or approximately $1,600,000 in mission- and program-related investments over the next 8 – 10 years. Details about our current program-related investments can be found here.
- Philanthropy: Philanthropic investments are grants where social needs outweigh any consideration for financial return. Details about our grantmaking can be found here.
In addition to the strategies above, AJL has invested alongside our core value of diversity, inclusion and equity. The Knight Foundation’s 2018 Diverse Asset Management Firm Assessment identified that within asset management women and minorities are dramatically underrepresented. AJL has made it a priority to include in its evaluation criteria of investment managers the diversity of the investment team and/or management not only because it makes financial sense (diverse teams add value) but also to drive change within the investment industry. Half of the investment manager's portfolio management teams have gender and/or racial diversity.
Over the coming year, AJL, in partnership with our investment advisor will be intentional about seeking out women and minority-owned investment firms to include in the portfolio.
Click here to see AJL's impact and financial performance for the most recent quarter.
It's not perfect
AJL’s objective is to design an impact/mission aligned portfolio that maximizes both return and impact. Over the last year, even though the foundation is 100% impact-aligned, there have been some areas that are not perfect, outlined below:
- There are limited impact funds in specific asset classes.
- Exclusionary screens can remove the direct exposure to specific companies which derive revenue from the screened sectors but that doesn’t always remove the business involvement in those sectors by other companies in the portfolio.
- Currently, there isn’t a standardized framework for measuring ESG data, so the ratings for companies can vary widely between ESG ratings agencies.
- The measurement, evaluation and data are limited for understanding impact and how to integrate it into the decision-making process that considers risk, return, and impact.
While the aforementioned limitations can appear to be challenges these are actually opportunities for foundations, beneficiaries, and investors to work together to be field builders and develop tools to drive more capital towards impact.
This post is the third in a series about AJL’s journey to impact investing. Other posts in the series can be viewed here:
- Part 1: How We Got Started
- Part 2: How to Evaluate Your Financial Advisor
- Part 3: Portfolio-wide Mission Alignment: Strategies and Objectives
- Part 4: Timeline and Resources
- Part 5: Diversity and Finance (coming soon)
- Part 6: What’s Next? (coming soon)
Impact investing is a learning journey and every foundation’s experience is different. It is in the spirit of learning and sharing, particularly for small-staffed foundations with limited capacity, we offer the resources we relied on through the journey. Please feel free to view, use or modify any of the below resources, and any questions can be directed to Kristi Petrie, Executive Director at firstname.lastname@example.org.
- AJL Foundation's Investment Policy Statement
- AJL Foundation's Expression of Interest for Impact-Oriented Investment Advisor (September 2018)
- AJL Foundation's Request for Proposal for Impact-Oriented Investment Advisor (December 2018)
- Socially-Conscious Bank Search (Philanthropy Colorado) - Request for Proposal (August 2021)
Impact Investing Journey: How We Got Started (part 1) - Blog Post
Impact Investing Journey: How We Evaluated Our Financial Advisors (part 2) - Blog post
- Impact Investing Journey: Timeline and Resources (part 4) - Blog post
- Impact Investing: Strategies and Evaluation of Impact Alignment Across Our Portfolio - Video (July 2022)